ECB's Stark-Crisis cure needed to avoid disaster

By IBT Staff Reporter On 12/02/11 AT 4:08 PM

An urgent solution to the euro zone debt crisis needs to be found otherwise there will be widespread macroeconomic and financial disaster, one of the European Central Bank's top policymakers Juergen Stark warned on Friday.

The euro zone faces a crucial week next week with the bloc's leaders holding a crunch crisis summit at the end of it and the ECB meeting for its final policy meeting of the year, with pressure on it to make clear it is prepared to do whatever it takes to save the euro.

The lingering and expanding sovereign debt crisis must be halted to avoid macroeconomic and financial disaster, in the euro area and beyond, Stark, one of the ECB's six-member Executive Board said in a speech at the Forecaster Club of New York which put the onus firmly on political leaders to act.

A solution needs to be found urgently. No country is immune anymore to a loss of market confidence in its public finances, Stark added, pointing the finger at the U.S., saying it was now essential for the U.S. to formulate a credible fiscal consolidation program that returns its government debt to a declining path towards sustainable levels.

With the debt crisis taking an increasing toll on the euro zone's economy, the ECB is expected to cut interest rates for the second month running next week --by at least 25 basis points-- a move that would shunt them back down to the record low 1.0 percent they started the year at.

On top of that it is also expected to introduce a new wave of support measures to help the bloc's battered banks, including extending the loans it gives them to up to three years and loosening its rules to make it easier to access its funding.

Stark, who will quit the ECB at the end of the year, stuck to his view that the ECB should not be given the task of solving the crisis, code for no all-out bond buying.

Monetary policy should not be overburdened. Monetary policy in the euro area was and will remain an anchor of confidence and stability. It will remain dedicated to its mandate of maintaining price stability.

Previously the ECB did not go under 1.0 percent with its main interest rate, but this time around economists believe it could be forced much closer to the zero mark.

A white Fiat van rammed into pedestrians outside enjoying a late afternoon stroll on Las Ramblas in Barcelona on Thursday killing at least 13 people and leaving hundreds injured. The Islamic State group claimed responsibility for the attack.